Zero-Rating Data

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by Michael Gariffo

Docid: 00021040

Publication Date: 2007

Report Type: TUTORIAL


The term "zero-rating data" refers to mobile
network operators or Internet service providers (ISPs) allowing subscriber
access to certain services, Web sites, or apps without that data
usage being counted against a
limited-data allowance. This practice lets subscribers use data far beyond the
amount that would otherwise cause an excessive monthly data bill
while providers foot the cost for
their users’ data consumption and keep subscribers happy. While this may seem like a
good business arrangement on the surface, many opponents of the
practice claim that it violates the spirit of net neutrality, with some
having protested that it violated Federal Communications Commission
(FCC) guidelines forbidding paid prioritization of online services, before
those guidelines were repealed. This
report will examine the practice, the companies currently utilizing it, the potential backlash against
it, and the possible re-regulation of zero-rating data.

Report Contents:

Executive Summary

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zero-rating data is now a controversial issue, this was not
always the case. The concept has been around for the better part of a
decade, and even longer if the "data" portion of the term is
removed. There are many similarities between zero-rating data and
toll-free calling, with the newer form of subsidized data consumption even
having been called "toll-free data" by many. The comparison is an
apt one, although it does not tell the whole story. While both toll-free
calling and zero-rating data feature a company paying for the charges
related to the method that customers use to communicate with
it, zero-rating data’s unique business model is much more
complex and can benefit a much wider range of commercial interests in a given
scenario. This is where the situation becomes considerably more sticky
and can run into regulatory issues. Unlike toll-free calling, where
the only parties involved are the caller and the recipient (usually a
business or organization), zero-rating data can involve multiple businesses
and, more problematically, the telecommunications carrier that is powering the interaction

The involvement of the telecom carrier or ISP is where
the controversies surrounding zero-rating data begin. Rather than serving
as the "dumb pipe" through which a given interaction can take
place, as net neutrality proponents would like, this practice places the carrier or ISP
directly in the road between user and service provider. The result is that
the data carrier's business interests have a direct effect on the
consumer. A simple
example of why this could be problematic involves a single consumer
wishing to stream video on their mobile device. The particular video is available
from two video streaming services. The first is a large, well-known provider that has
signed an agreement with the user’s carrier which allows the user to stream
their desired content without incurring any data charges.
The second is a lesser-known
provider that offers the exact same video but does not have an alliance with the user’s carrier. This means that, should the user choose the lesser-known
provider, they will incur data charges that they could have otherwise
avoided. Since most consumers will avoid extra costs when possible, the most
likely outcome is that the provider who maintains a
zero-rating data agreement with the user’s wireless carrier will
ultimately be the one chosen. Effectively, the carrier has interfered with
the free market of streaming video providers by prioritizing the services
of one provider over another, resulting in the stifling of business
for the lesser-known provider. This
comes very close to the paid prioritization and Internet fast lane
concerns that have been part and parcel of net neutrality proceedings for
many years. It is at the core of why many legal analysts and activist groups believe the practice of zero-rating data should be

That said, there have been some cases where zero-rated data offerings
have been considered laudable, with companies like Google, Wikipedia, and
even Facebook having, at times, been praised for offering their services
to developing countries at little or no cost to the end user via
zero-rating data agreements. While this report will cover usages of this
type, they are relatively few and far between when compared to the
growing number of zero-rating services that are available now or soon to
be available which are entirely commercially-minded.



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As with many modern technological concepts, zero-rating data began as
something applied to a much older technology: the telephone.
The idea of allowing a business to attract customers by
paying for the telecom costs associated with contacting them
began as toll-free calling. However, toll-free calling was always a binary
relationship between a consumer and business, with the telecom carrier remaining neutral. Yes, an argument could be made that
a larger business could afford to provide toll-free calling to many
customers while a smaller one might be able to afford far fewer calls, or none
at all. However, the barrier for entry was as simple as calling up the
local telephone provider and signing up for a service that was equally
available to all comers. It is the dissimilarity between this example and
the current state of zero-rating data that has caused it to become
controversial. In most modern zero-rated data agreements, the telecom
carrier or ISP is very much involved in the business aspect of choosing
who pays for the data being consumed, picking and choosing the services
for whom it will forego any data charges.

This was not originally the case. In fact, some of the first
examples of zero-rating data put into practice may be considered
among the most altruistic uses of the concept ever seen. It
is important, then, to look at the relatively short history of zero-rating
data, analyzing its transition from a fringe concept targeted primarily at
developing nations to one of the most hotly contested concepts in the
modern telecom market.


The modern concept of zero-rating data essentially began with the launch
of Facebook Zero in 2010. This service provided a stripped down version of
the social network to customers in developing countries where the primary
method of accessing the Internet was a cell phone. Facebook
Zero allowed customers of 50 carriers across the globe to see a text-only
version of the social network without incurring any data charges unless
they chose to load an image or left the Facebook ecosystem. A few of the
supported carriers operated networks in developed nations, including Three in the UK
and SFR in France, but the vast majority were located in nations with
little or no high-speed data such as Botswana, Cameroon,
Georgia, Pakistan, and many others.1 While this obviously benefited
Facebook by opening its services to millions of users that would
otherwise have been unable to afford to use it, it was not without its
benefits for users.

Facebook Zero did, after all, provide a method of communication to people that
would otherwise have been unable to talk to the world at large. This is
even more important for citizens living in nations with repressive regimes
and unstable political situations. Facebook Zero was lauded as giving a voice to everyone, even those
with very few means. But that lack of means and subsequent reliance on Facebook led many to worry that the social network would gain too much
control over what a massive portion of the world’s population saw and learned
on the Internet. While these fears may not have been realized on a global
scale, one study found that the majority of Facebook Zero users in at
least three countries had no idea that there was any more to the Internet
than Specifically, in a survey given to customers across numerous Facebook Zero-supported nations, 65 percent of Nigerians,
61 percent of Indonesians, and 58 percent of Indians agreed with an
included statement saying "Facebook is the Internet."2 Similarly,
many respondents who said they used Facebook on a regular basis claimed that
did not use the Internet.3 While some may chalk this up to
simple technological ignorance, others fear that it is a perfect example
of what can happen when a single commercial entity is given control of
something that many believe should be a public utility available to all on an equal basis.

In 2012, two additional well-known Internet entities in the
world launched similar initiatives: Google Free Zone and Wikipedia Zero.4,5 While both services were obviously based on
the idea of Facebook Zero, neither was as restrictive and neither
offered the potential to make money for its owner in the way Facebook Zero
did. Because of this, these two offerings (particularly Wikipedia Zero) are seen as
among the best, most consumer-minded examples of
zero-rating data. They may not have been perfect, and they may have
still provided a way for their owners to derive at least some income from their
existence, but they would pale in comparison to the financial gains made
possible by services that would launch a few years later with no qualms
whatsoever about flaunting their commercial bent. 

Modern Zero-Rating Data Services

The modern era of zero-rating data services is widely considered to
have begun with an offering that US carrier T-Mobile launched in
June 2014. "Music Freedom" allowed T-Mobile
subscribers to stream audio content from any of the supported service
providers without having that data usage count
against their monthly allowances. It began with only a
handful of service providers but has since evolved to support 46.6,7 These are, by no means, lesser-known
streaming services. Music Freedom launched with the likes of
Pandora, iHeartRadio, iTunes Radio, and Spotify already on board; it has
since added Amazon Music, Apple Music, ESPN Radio, Google Music, and many
others with nearly all major providers in this genre having been accounted for.8
That said, the well-known members of the Music Freedom partner list have not changed
in several years. While T-Mobile claims it will "work with" any "lawful
and licensed streaming music service," the company’s list of 46 partners
has barely shifted since 2017, suggesting it may not be as easy
for new participants to get added to the service as the carrier would

The second major launch in this category also came from T-Mobile and
expanded its zero-rating catalogue to include video services as
well. Debuting as Binge-On, the service provides unlimited streaming of
video content from allied services (albeit at a reduced resolution)
without affecting data reserves. Service providers for this
offering include Crunchyroll, NBC, PBS, YouTube, Google, Netflix, Hulu,
ESPN, and many others. Like Music Freedom, the data consumed while
watching videos from any of these providers is subsidized by the agreement
with T-Mobile. Also like Music Freedom, any data
consumed by a user accessing any other service provider will be charged in full.
This gives each of the allied audio and video streaming
partners a massive advantage over the competition. 

Shortly after the launch of T-Mobile’s duo of services,
two of its largest competitors also brought their own sponsored data
services to market. However, these offerings are somewhat less
controversial as they operate much closer to the previously
mentioned toll-free phone service. FreeBee data and AT&T’s Sponsored Data
offering both provided a way for businesses to pay the bill for a customer’s
data usage.9 Both programs were capable of using data packet
inspection technology to determine when a user is accessing a sponsored
app, Web site, or service. This signals the carrier to waive the
fee for that access. While there is still a possibility that this practice
will eventually attract regulatory attention. However, that remains
unlikely in the near term thanks to the current US administration’s
distaste for net neutrality and the regulation of the telecom policies
of ISPs and network providers in general.

Various other ISPs and carriers have launched somewhat
lesser-known offerings as well, but T-Mobile remains the most glaring example of
the practice. If there was any doubt
of the company’s dedication to expanding its zero-rated data offerings, it was put to rest when the carrier announced that
it would personally waive all data consumption created by players running the
wildly popular mobile game Pokemon Go. This announcement once again
ignited calls for regulatory oversight of the practice, but to no avail.

Current View

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The Consumer View

At least for T-Mobile, the introduction of
zero-rating data services has proven to be a huge boon to business. While
most of the other offerings from other providers remain
relatively obscure, T-Mobile’s Music Freedom and Binge-On almost certainly
played a major role in that carrier’s recent ascension from its long-time
spot as the fourth-place carrier among the "Big 4" US providers
to third place, surpassing rival Sprint, which it has since been able to
acquire. Thanks to the company’s habit of marketing itself as a cheaper alternative to its competitors,
especially AT&T and Verizon, it has seemingly achieved an
image among consumers of being a scrappy upstart that can offer the same
services at lower cost. This image is only helped by the fact that users
can conceivably subscribe to a smaller – and thus lower cost – data tier
than they would be able to at another carrier. This is because a major
portion of their data consumption, in the form of audio and video
streaming, is covered by the dual benefits of Music Freedom and Binge-On.
The amount of data consumed by visiting a Web site or reading
an email is only a small fraction of what can be consumed quickly when
rich media is streamed to a device. This leaves ample head room for
many users on data tiers that would have resulted in significant overages
at just about any other carrier. 

The facts stated above may lead one to question why the FCC should step
in at all if the average consumer is benefiting from the
zero-rating data programs at T-Mobile. The reality is that federal regulators must also safequard the well-being of all sizes of companies
and corporations, along with their duty to safeguard individual consumer well-being.
While the video and audio providers that are currently supported by
T-Mobile’s services are likely also benefiting from the additional influx
of users and traffic generated by the zero-rated programs, there are
many smaller and newer entrants into those markets that may now be
unable to compete because of the existence of offerings like Music Freedom
and Binge-On. As stated above, no sane consumer will pay for a service or
piece of media that they could otherwise receive for free. Smaller media providers
could be faced with a reality in which,
despite having an equal selection to its larger competitor as well as
equal or greater service quality, it would lose T-Mobile customers because
its competitor has an agreement in place with
T-Mobile. It’s a near certainty that that customer will go with the option supported by
T-Mobile’s zero-rated services. 

The Regulatory View

While the variable at work is cost instead of speed, it must be
said that the current state of zero-rated data services in the US very
closely resembles the paid prioritization and Internet fast lane scenarios
that the FCC fought so hard to prevent with its net neutrality
legislation. The only difference is that companies are paying to have
carriers foot their customers’ data bills, rather than paying to provide a
faster pipeline for those same customers.

Despite this, the FCC had remained largely mum on the topic for several
years. This was because the former FCC Chairman, Tom Wheeler, was
largely taking a wait-and-see approach to the services. He acknowledged
on several occasions that they were worth watching as potential
violations of net neutrality, but seemed unwilling to directly act on
them without additional evidence suggesting that consumers and companies
were being harmed by their continued operation. However, that all
changed when Wheeler departed the FCC to be replaced by current Chair Ajit Pai.

Pai’s stance on zero-rated data and net neutrality as a whole has become a
keystone of his tenure as the head of the regulator.
Specifically, Pai saw no problem whatsoever with zero-rated data services, and
was staunchly opposed to the idea of net neutrality as a whole. Shortly after
taking his current office, Pai issued the following statement:

Today the Wireless Telecommunications Bureau is closing its
investigation into wireless carriers’ free-data offerings. These
free-data plans have proven to be popular among consumers,
particularly low-income Americans, and have enhanced competition
in the wireless marketplace. Going forward, the Federal
Communications Commission will not focus on denying Americans
free data. Instead we will concentrate on expanding broadband
deployment and encouraging innovative service offerings.10

Given the fact that Pai is essentially in control of current US telecom law,
and the fact that his trademark accomplishment is the repeal of the US’
highly-popular net neutrality safeguards put in place by his predecessor, it
seems highly unlikely that the FCC’s hands-off attitude to zero-rating data
services will change until he has been replaced. In fact, any restriction at all on
zero-rated services seems unlikely as it would require a movement towards greater regulation in a time
when FCC oversight has been loosening considerably. This is almost guaranteed
not to happen until an new administration with opposing views chooses the next
FCC Chair.

With the FCC’s laissez faire stance on zero-rated data services having been made
clear, it should be noted that some other groups and nations are anything but
ambivalent about the threat to commercial fairness posed by zero-rating data
services. In fact, the national telecom regulatory body of Chile banned all
zero-rated data services from the country as early as 2014.11 While
this approach may have won the approval of some of the most hard-line net
neutrality advocates, the reaction to Chile’s decision was, in fact, a largely
negative one as the new ban also impacted the zero-rated services offered by
Wikipedia, Google, and Facebook. In a country where less than one quarter of the
populace subscribed to a mobile broadband service at the time, these offerings
were extremely popular among the less affluent citizens but were effectively
stripped away by the decision.12 If
there was any doubt before Chile’s decision that a well-meaning but technically
minded view of net neutrality could actually harm the populace, that has
seemingly been put to rest, at least for developing nations.

The Internet Stakeholders’ View

Despite the impact a ban on zero-rating services has had in
Chile, US stakeholders and advocacy groups feel that the US situation is
an entirely different animal. In fact, a coalition of 50 stakeholders and
groups sent a joint letter
to the Federal Communications Commission in March 2016 asking them to take
an official stance on zero-rating data services.13 The letter
focused heavily on offerings from companies like Comcast where the
provider exempts users from data consumption while accessing media via
its own services. As one of the US broadband providers to have offered
capped, in-home broadband subscriptions, Comcast was also among the first
to exempt its own media streaming offerings from that cap. However, others
have followed suit. This, according to the signatories of the letter, is
unacceptable and threatens to "undermine the spirit and the text of the

A second
was sent to the FCC in May 2016 from an entirely independent
group of organizations and commercial stakeholders such as the Mozilla
Foundation, telecom companies like Level 3 and Cogent, and online
retailers like Etsy.14 While it did not take as rigid a stance
as its predecessor, it did ask the regulator to be transparent on the
decision-making process on how to handle
zero-rating data services. Aside from a handful of notedly informal
contacts the FCC has had with carriers and ISPs, the entirety of the
examination of zero-rated services had happened behind closed doors, prior
to Ajit Pai taking office. This coalition
of nearly 60 companies wanted the regulator to "open a public process to
inform [its] evaluation of existing zero-rating plans." Although the
regulator has now officially taken a stance on the matter, it may well
not have been the one that these letter-writers would have liked.


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The Chile decision is a perfect example
of why US regulators must walk a very fine line in their approach to
regulating or even officially addressing zero-rating data services. While
the US is by no means a developing country that depends on zero-rated
versions of Wikipedia or Facebook for connectivity, it is now at the point
where zero-rated services are becoming an entrenched part of its
commercial landscape. It might be hard to argue that a T-Mobile customer’s
free access to Spotify or Hulu is anywhere near as vital and worthy of protection
as a poor Chilean citizen’s access to Wikipedia was. But, nonetheless, if the FCC
altered its stance and chose to take the same
authoritative approach to
zero-rated data as its Chilean counterpart, it would very likely hear from
millions of angry streaming media customers in short

Zero-rating data is, at its heart, a much stickier situation than the
existing bright line issues that most net neutrality
legislation is designed to protect against. While known net neutrality
violations like the creation of an Internet fast lane or willful
throttling of certain services have clear and obvious anti-consumer
aspects to them, zero-rating data is less obvious in its potential threat
to commercial fairness and competition. Do these threats exist? Almost
certainly. But, are these any more worrisome than the various ways
in which corporations and telecom entities are incessantly trying to skirt
other existing laws and guidelines to maximize their own profits? That is
what needs to be determined by the FCC and what may need to be regulated.

Currently, the agency has officially ended any opposition to the business
practice. This means that, at least for the remainder of the Trump
administration’s term, it is highly unlikely that any regulatory obstacles will
be put in the way of zero-rating data services. Consumers and
businesses will have at least another year or so to become accustomed to
zero-rated data services and their impact on the financial and commercial health
of the US. This begs this question of whether there is really any chance that
the subsequent administration will have the necessary grounds to reverse the
governmental stance and regulate zero-rated services more strictly. After all,
the majority of consumers are not currently clamoring for any type of regulatory
intervention into the matter. Given how accustomed they have become to
freely streaming video and audio from approved sources, any attempt at
regulating them well create an
environment in which the legal action is seen as an attack on their consumer rights. The point is, the longer zero-rated
services go unregulated, the more difficult it will be to regulate them if, and
when, the time comes that they are found to be harming consumers or the free
market as a whole.

This risk is only growing as more and more network provider are also becoming
media companies. The likes of AT&T's HBO Max and Comcast's Peacock mark another
two instances of some of the largest telcos and ISPs in the US controlling both
a streaming media service and a fair portion of the networks over which that
service's data travels. As the industry continues through its current era of
consolidation, this trend only seems poised to grow. And, without regulation to
stop it, why wouldn't a telco or ISP offer their customers the extremely
attractive option of using its streaming services without data charges, if, and
only if, they also subscribe to its broadband or mobile services.


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As stated above, services of this type are essentially safe for at least the
remainder of the Trump administration’s term. That means that they can be relied
on to continue operating and likely flourishing for through at least 2020, if
not beyond. Whether they continue to do so after this time is based on two
factors. First, whether or not consumer sentiment turns against the services.
For an example of how this could happen, one need only look at the massive
public outcry that net neutrality remains the focus of. A few years ago, most
consumers were not even aware of the concept of net neutrality, as the Web had
always been an open and free place. It was only when the Web began being divided
up by major telecom operators and ISPs that the concept of net neutrality became
so important that it gained mainstream media coverage and became a rallying cry
for the informed consumer that was interested in protecting their freedoms. That said, relatively little evidence currently exists that consumers
will rally against zero-rated data services. After all, unlike the elimination
of net neutrality, consumers stand to gain access to free data in any scenario
where zero-rated data services are allowed to flourish.

In a similar vein, the repeal of net neutrality legislation
in the US will also have a massive impact on the regulation of zero-rated data.
There is now essentially zero chance that
regulators will address zero-rated data, as there is no longer even be a
legal basis through which the concept could be addressed. This is because much
of the power that the FCC could exert over zero-rated data providers was derived
from the passage of the Open Internet bill which enshrined the now-repealed net
neutrality legislation into US law.

For all of these reasons, it is looking more and more likely that zero-rated
data services are here to stay, at least for the next several years.
Whether this proves to be a boon or menace to consumers is something that is yet
to be determined. However, consumers and small businesses alike should remain
vigilant to the real impact such services are having on them. While it may
currently seem like these services are generally harmless and helpful to
low-income individuals, as Pai suggests, their proliferation could very easily
lead down a slippery slope where competing services and non-allied offerings
become all but unusable on certain ISPs or mobile providers. This is the
nightmare scenario that net neutrality was designed to protect against. Although
it may seem that any such outcome of this type would be easy to recognize right
now, the slow change and gradual alterations that make up the majority of US
telecom history can come on so subtly that their very nature is hard to notice
until it is too late.


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About the Author

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Michael Gariffo is an editor for Faulkner Information Services. He
tracks and writes about enterprise software, the Web, and the IT services
sector, as well as telecommunications and data networking.

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